Cloudonomics: The Business Value of Cloud Computing, + Website

Utility Pricing

In our definition of cloud, resources are utility priced. Other terms for the same approach include pay-per-use, linear tariffs, or usage-sensitive pricing or charging. Such usage may be metered over time (e.g., server hours) or based on quantity (e.g., bytes transferred) or some other “usage” metric or combination of metrics (e.g., per user or per seat per month). Subscription pricing—whether for newspapers or software as a service—is an interesting variant. It is typically flat rate per user but sensitive to the number of users. Since this is distinct from flat rate at the firm level, we consider it to be a usage-sensitive pricing model. It does illustrate, however, that granularity and context are important concerns. Is an online newspaper usage priced if there is a given rate per user? Or per user up to a number of devices? Or by article read? Or by paragraph? Sentence?

Utility pricing is in contradistinction to other pricing models, such as freemium, lifetime, nonlinear, or flat rate. An example of flat-rate pricing is the traditional enterprise license agreement for software, which is the same price regardless of the actual number of users, or so-called unlimited plans, for example, for texting or voice minutes, which have been priced so that the charge is the same whether you use the service a lot, a little, or not at all. A flat-rate plan costs the same amount each time period, typically per month, although there are flat-rate plans per day in many other ...